Donors Weigh Immediate Needs Against Upstream Solutions

November 3, 2011

With the number of Americans in need growing and social services budgets under pressure at the local, state, and national levels, the meaning of "private giving for public good" has become a hot topic of debate, the New York Times reports.

Although charitable giving rose slightly on a year-over-year basis in 2010, Giving USA found that donations to organizations working to address basic human needs fell more than 6 percent. Meanwhile, according to the Census Bureau, the number of Americans living in poverty — 42.6 million — has never been higher and median incomes across the country are down. But while middle- and lower-income people struggle, among donors and funders there is a divide between those who believe charitable dollars should go to frontline service providers and those who prefer to give to experimental programs, cutting-edge science labs, arts and cultural institutions, or their alma maters.

Under the leadership of Emmett D. Carson, the Silicon Valley Community Foundation is firmly in the former camp, having distributed $6 million to food pantries and shelters since 2008 despite criticism from local donors who either were unaware of or in denial about how many residents of the area needed food assistance. Similarly, the Sunshine Lady Foundation, which is run by Warren Buffett's older sister, Doris Buffett, has focused on paying for emergency needs such as tires, wheelchairs, refrigerators, dental work, and roof repairs, and also supports higher education for prison inmates and victims of domestic violence.

That sort of short-term response to immediate needs and problems has left some philanthropists and foundations feeling dissatisfied. When, for example, the Bill & Melinda Gates Foundation was pressed for a $30,000 grant to help reopen homeless shelters in Seattle, it noted that it already had spent $47 million on transitional housing and homelessness in the Pacific Northwest and committed an additional $67 million to the issue. "We're trying to move upstream to a systems level to either prevent family homelessness before it happens or to end it as soon as possible after it happens," said Melissa Milburn, a spokeswoman for the foundation.

At the same time, new ways of deploying philanthropic dollars to address basic needs are emerging. Doris Buffett's prisoner education program is just one example of an approach known as "impact investing," as is a British government program to sell "social impact bonds" to fund a nonprofit recidivism-reduction program. The Rockefeller Foundation, one of the investors in the British program, is working to replicate the experiment in the United States and is encouraging other impact investment approaches such as low-interest loans, bridge financing, and mission-related investments to address immediate needs.

"These are much larger pools of money that have traditionally been invested solely to achieve a financial return," said Antony Bugg-Levine, CEO of the Nonprofit Finance Fund, who oversaw Rockefeller's investment in the social bond experiment as a managing director at the foundation. "If just a fraction of those assets gets invested in this way," he added, "it can make a significant difference."